Hello, I'm new to buying and selling real estate, so sorry if this question bugs anyone, but I'm just trying to get a better hold of what I've been reading into for a few weeks. What I was wondering is If I bought a property for $85,000 and renovated the property with $25,000 using a 203k loan then selling the property for 143,000. My profits should be $33,000 but what other fees would I have to look into including the real estate agents commission to get the true profit amount, and if it's even worth it to buy such a property to flip.
When you sell a property - you typically pay the listing agent 3% of the sale price and you pay the buyer's agent 3% - a total of 6% of the sale price goes to the real estate agents/companies. You also have to pay closing costs which is several thousand dollars.
While you own the property, you need to calculate the costs associated with owning a property such as taxes, insurance, utilities, and possibly HOA fees. If you are interested in buying and flipping a property, then you'll definitely want to calculate these 'holding costs' - basically from the time you buy the property to the time you sell it. If things fall behind and remodeling either takes a lot longer or costs a lot more, or even if it takes a while to sell the flipped property, then this will significantly impact your profit.
For the property you referenced above, the 6% agent commissions will leave you with $134,420, or a profit of $24,420 - not including closing costs for both buying and selling the property, and not including the costs I mentioned above. I personally don't think it sounds like a great deal, since you may only make $10,000-$15,000 in the best case scenario and it will probably involve several months of your time and effort.
Hope this helps.
Thank you Jay! That information definitely helped a lot, there's still a lot more I need to learn before I completely invest. I appreciate the wonderful response!
@Le Nguyen I personally just plan on 10% of the deal in cost its close and an easy number. Of course you have to save back some money for taxes as well.
I would not consider such a deal. the is something here called the 70% rule. It is a common formula to quickly evaluate a rehab deal. You should do a more complete analysis but this is a quick crude test. A search will bring a ton of posts about it.
Typically the hidden costs you are speaking of "Soft Costs" are about 15% of a deal but can be as high as 20% with expensive financing costs.
- Closing costs to buy
- Transfer taxes to buy
- financing interest cost
- financing points cost
- taxes while holding
- utilities while holding
- insurance while holding (Builders risk 2 to 3 X as expensive as regular insurance)
- Closing costs to sell
- 3% closing help for buyer
- 6% real estate commission
This is not a complete list but it will give you an idea.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Join the Largest Real Estate Investing Community
Basic membership is free, forever.